Express covenants - overview

In addition to the obligations that are implied into every contract of employment, further obligations may be imposed on an employee by way of express terms:

These are usually referred to as ‘restrictive covenants’.

Restrictive covenants may impose a variety of obligations during the course of the employment relationship:

Exclusivity

There is an implied duty preventing employees from undertaking extraneous activities during working hours, but no such restriction at other times: an express covenant is needed to restrict the employee's activities during his spare time.

Such covenants may seek a total or a partial ban on spare time business activity: total bans are more likely to be thought unreasonable for part-time employees. Partial bans should identify the precise activities which are banned: usually those seen as competitive.

Particularly where total bans are sought, express exceptions to the ban may be helpful. These may include:

For further details, see Restricting employment with third parties.

Confidential information

Since the implied duty not to disclose confidential information ceases when employment ends, the only way of protecting confidential information (as opposed to trade secrets) after employment is by express covenant.

Confidentiality clauses often cover disclosure during employment too, which has the advantage of making the employee’s obligations clear from the start of employment.

There are two principle issues in drafting confidentiality clauses:

Confidentiality clauses that are too wide and/or too vague are likely to fail:

Generally confidentiality clauses should be limited both as to period and geographical ambit.

For more information, see Protecting confidential information.

Garden leave

When an employee is due to leave, there may be concerns that if he continues to work during his notice period, his contact with key clients and suppliers will increase the risk that they will follow him to future competing employment. Terminating the employment immediately is not an answer, as this would potentially free the employee from the express and implied duties that subsist during employment.

Garden leave clauses address this problem by keeping the contract of employment alive during the notice period, but also removing the employee from contact with clients and/or suppliers. Under such clauses the employer is able to require the employee not to attend for work at the employer’s premises or to perform any work duties or to have any contact with clients and/or suppliers.

It is almost always better to include an express garden leave clause rather than rely on any inherent contractual right, as the likely outcome of any successful challenge to the employer placing the employee on garden leave is that the employee would be released from all post-termination covenants.

Such express clauses should:

It is also possible to introduce quasi garden leave clauses, which provide for altered and/or reduced duties rather than actual garden leave. This allows the employer to continue to keep an eye on the employee in the workplace, whilst also keeping him away from clients and/or suppliers.

Restrictive covenants may also seek to impose obligations after the end of employment:

For more information, see Garden leave clauses.

Post-termination clauses

Once the employment has terminated, the employee will be free, in the absence of any express covenant, to compete with his former employer, to use his employer’s confidential information (but not trade secrets), to solicit business from his employer’s customers, and to solicit his employer’s staff to join his competing business. Because of this it is common for employers to seek to restrict post-termination activities with express covenants.

The law places significant restrictions on express covenants in restraint of trade: a person is generally entitled to trade when, where and in what manner he wishes. However, exceptions to this doctrine allow the creation of lawful and enforceable post-termination restrictive covenants.

Types of post-termination clauses

These commonly include one or more of the following:

Non-compete clauses: seeking to prevent the employee from undertaking competitive activity within a particular geographical area centred on where he previously worked. Such clauses must:

Blanket non-compete clauses are blunt and usually difficult to enforce. Clauses can instead list certain named competitors with whom the employee may not work.

Non-solicitation/non-dealing clauses: stopping an employee exploiting knowledge of customer or supplier lists and/or his own relationship, built up during employment, with those customers and suppliers:

Non-poaching clauses: these are particularly useful with senior employees who are more likely to have influence over junior staff, and may be able to persuade them to leave the employer. In drafting such clauses, one should consider:

They should be no wider than is reasonable: eg blanket non-poaching clauses are likely to be unenforceable if the employee only ever worked with one section of the workforce.

Such clauses should be of no greater duration than is reasonable.

For further details, see Post-termination clauses.